Why California Wants to Shut Down Uber Technologies' Self-Driving Cars

By John Rosevear Markets Fool.com

Whoops. Just one day after launching a pilot program using self-driving cars to provide rides to its customers in San Francisco, Uber Technologies is in trouble with California regulators.

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Why California regulators think Uber's pilot program is illegal

Just a few hours after Uber's self-driving Volvo XC90s went into service in San Francisco, California's Department of Motor Vehicles (DMV) sent the company a letter demanding that it immediately stop using the self-driving vehicles to pick up Uber customers.

A Volvo XC90 equipped with Uber's prototype self-driving system in San Francisco. Imagesource: Uber Technologies.

California requires a special permit to put autonomous vehicles on its roads -- and Uber doesn't have one.

The letter, signed by the DMV's chief counsel, Brian Soublet, explains that the state's regulations "clearly establish that an autonomous vehicle may be tested on public roads only if the vehicle manufacturer, including anyone that installs autonomous technology on a vehicle, has obtained a permit to test such vehicles from the DMV."

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It goes on to note that 20 companies have so far received permits to test autonomous vehicles on California's public roads and that "had Uber obtained an autonomous vehicle permit prior to [Wednesday], the company's launch would have been permissible."

"However, it is illegal for the company to operate its self-driving vehicles on public roads until it receives an autonomous vehicle testing permit. Any action by Uber to continue the operation of vehicles equipped with autonomous technology on public streets in California must cease until Uber complies." [Emphasis added.]

Did Uber take its self-driving cars off the road after receiving the letter?

Apparently not. According to an Associated Press report, Volvo XC90s equipped with Uber's distinctive self-driving sensors were seen on San Francisco streets on Wednesday night, hours after the letter was released.

What does Uber say?

As of this writing, Uber has yet to publicly respond to the DMV's letter. But in a blog post released on Wednesday morning, before the letter was sent, Uber seemed to anticipated the controversy.

In the post, the company argued that it doesn't need a testing permit because its cars have human drivers closely monitoring them as they drive -- and because other U.S. locations, including Pittsburgh (where Uber's pilot began), "have recognized that complex rules and requirements could have the unintended consequence of slowing innovation."

In other words, Uber didn't just forget to file the permit application. It seems to see itself as trying to strike a blow for freedom in its home state -- or at least that's what it is saying.

What's required to get one of these permits?

The requirements aren't onerous. The company applying has to show proof of insurance, agree that it will have a human driver ready to take over control of the vehicle if needed, and pay a $150 fee.

It wouldn't be a big deal for Uber to do any of that. But the rules require that the permit holder must report all crashes and every instance in which a human driver takes over during testing to the state -- and all of that information becomes public.

If Uber can avoid making those reports, it might have a competitive advantage over the companies that do report. That's probably the real reason why Uber didn't want to register.

How is California likely to react to Uber's refusal?

Not well. I expect that if Uber doesn't backtrack quickly, the DMV will take the company to court and force it to comply. A fine will probably be levied.

The Associated Press reported that Uber and the DMV are set to meet late on Thursday. We'll see if they can come to terms.

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